Cutting costs: maximizing results

Reading Time: 7 minutes

With over 6 million infected persons worldwide, the Covid-19 pandemic has affected states, businesses, and individuals, while its aftermath will be equally extensive. In order to protect their citizens, states have introduced certain legal measures. On the one hand, businesses are being obliged to accommodate production capacities for personal protective equipment (PPE), while on the other, transparency standards are being decreased in public tenders for such products. Both emerging and existing industries needed to adapt quickly, shifting focus to online sales channels, as well as the production of PPE, medical visors, ventilators and Covid-19 tests. Others, however, seized the opportunity, making substantial profits by producing subpar equipment that attained a notable share in the market due to the lack of quality control and oversight mechanisms.

It appears that anyone able to meet market demand and accept a client’s request for speedy deliveries will profit. To say that Covid-19 caused a general drop in sales and revenues could not be further from the truth. Although industrial production and tourism in Europe are expected to decline due to decreased demand, industries such as e-commerce, medical appliances, and pharmaceutical products have growth outlooks of at least 10 percent until the end of 2020.

Emergencies Know No Laws
However, these instances of repurposed production plants, although numerous and to an extent state-controlled in terms of safety and quality standards, turned out to be too little too late. As they could not satisfy the growing demand for PPE and medical equipment at the height of the pandemic, countries resorted to the acquisition of this equipment – vital for treating the sick and containing the coronavirus – through simplified procedures. Under the adage that emergencies know no laws, governments cut product safety and quality controls, as well as customs procedures and duties. Such steps, although undertaken to avoid supply shortages and disruptions, resulted in countries utilizing borderline sharp and corrupt practices.

Price bidding even after the ordered products left warehouses led to shipments being redirected from the initial client to the highest bidder. Purchases of Covid-19 testing kits from different suppliers with dissimilar protocols contributed to delays and increased numbers of false-negative results in national laboratories, preventing them from performing their crucial role in the fight against the further spread of the virus. In Poland, for example, a case that certainly merits an official investigation was the one where wholesalers of medical supplies terminated their contracts with hospitals in order to obtain higher prices for PPEs.

Questionable Practices in PPE Public Procurements
What seems to be a common trait in these cases that allowed companies to quickly close lucrative deals is their owners’ prior proximity to their respective governments. Such instances occurred between March and April 2020 in the EU with several cases indicating corrupt and backdoor dealings. Namely, in Slovenia the government signed an opaque Covid-19-related public procurement deal with a company owned by one of the country’s richest businessmen, with no prior experience in providing medical supplies. While no issues were raised in terms of quality and safety, the public in Slovenia demanded to know how a company with no background in the distribution of medical supplies succeeded in landing such a lucrative deal.

Following suit, Romania upped the stakes by acquiring subpar medical masks through a company owned by an individual convicted of organized crime, and a former government employee. Reports on this case indicate that the masks were misleadingly labeled with names of trusted medical brands, though they could not provide any actual protection from Covid-19. In March 2020, Spain withdrew 58,000 Chinese-made coronavirus testing kits from use as their accurate detection rate was allegedly only 30 percent. The tests were manufactured by Shenzen Bioeasy Biotechnology Company Limited, which the Chinese government later claimed was not on its list of approved suppliers of medical equipment. However, the company reportedly received a European Union standard certification (CE mark) in mid-March 2020.

This case highlighted that there seems to be a disparity between European and Chinese certifications, and that certification is not being sufficiently enforced and is mostly self-declared by manufacturers, who can choose whether or not to have it verified by an independent, EU-approved body. While such practices in the United States so far did not amount to this scale, it is however concerning that legislators adopted provisions that would decrease the transparency of public procurements, such as was the case with D.C. City Council. Namely, in mid-March 2020 government agencies curtailed access to information of public interest under the guise of emergency caused by the pandemic.

Increased Threat of Fraud
During the crisis, the B2C e-commerce industry also experienced a spike in activities. This came as no surprise owing to numerous new customers switching to online shopping for an array of products from luxury goods to grocery home deliveries. As a rule, in every booming industry, fraudsters quickly adapt, in this case by making sites or social media accounts to sell PPE in high demand, namely masks, hand sanitizer, and gloves. Instances of small producers of natural health and wellness products claiming antiviral or immunity boosting properties spread across the Internet. In addition to these, somewhat benign instances, a stronger cause for concern was a surge in commercial manufacturers and importers of Covid-19 home testing kits marketed in the United States. The US Food and Drug Administration (FDA) reacted in a public announcement warning that such tests were not authorized and cannot be marketed in the country.

While these PPE and health products intended for end-customers had no safety certifications or proven clinical trials that could support any health benefit claims, the customers did not seem to mind or pay attention at the time. What these occurrences highlighted was that retail and e-commerce industries are highly susceptible to fraud when offering products or services that might mitigate the risk of infection, or contribute to preserving personal health.

Governments Decreasing Transparency Standards
The implications of these cases will certainly cast a long shadow over the entire PPE and medical equipment industry and countries that failed in the attempt to secure key supplies in times of emergency. Indeed, government interventions in the form of decreasing transparency standards such is the aforementioned D.C. City Council’s for public tenders may have unintentionally accelerated this trend. The sum of individual actions of countries in terms of subsequent investigations of these illicit dealings cannot add up to a sufficient response that could restore the trust of its citizens that the state can ensure protection. Instead, governments and businesses need to engage in combined global cooperation with multiple stakeholders so as to mitigate any potential risks and impact in this unprecedented crisis. With PPE seemingly becoming an integral part of our everyday lives for at least another year, what we expect from the new normal ahead of us is that control mechanisms be put in place that would ensure vetted medical equipment is placed on the market.

The long-term implications of this series of events will be decreased confidence that citizens have in their governments and pharmaceutical companies. Even so, this can be addressed through increased transparency and accountability measures that should include public access to information about contracts and spending related to Covid-19 procurements. Furthermore, legislators and businesses must include in their contracts explicit clauses on anti-corruption, and ban any usage of contractors and subcontractors that can obscure beneficial ownership, thus facilitating corruption.